Saturday, May 18, 2013

The best way to harvest value is to create it

These days, many people have a negative view of business.  Think of Occupy Wall Street, for example.  That negative view is even starting to impact the startup world.  I'm seeing more stories about how so many startups are creating me-too products that don't solve real problems.

There is a solution to this negative view, and curiously enough, it's also the best road to profits.

I firmly believe that the best way to harvest value is to create it.

And there's even science behind it.

Professor Adam Grant of the Wharton School has a new book out, "Give and Take."  Grant's research shows that contrary to our belief that nice guys finish last, the people who focus on giving do better financially than those who focus on taking:

"Grant: In one of my own studies, hundreds of salespeople completed a questionnaire on their commitment to helping coworkers and customers, and I tracked their sales revenue over the course of a year. I found that the most productive salespeople were the “givers”—those who reported the strongest concern for benefiting others from the very beginning of their jobs. They earned the trust of their customers and the support of their coworkers. Similar patterns emerged in a number of other fields, and before long, I had many data points showing that the most successful people in a wide range of jobs are those who focus on contributing to others. The givers often outperform the matchers—those who seek an equal balance of giving and getting—as well as the takers, who aim to get more than they give."
The key is that human beings have evolved as social creatures.  We aren't purely Homo Economicus, always maximizing for short-term gain.  Evolution has shaped us to collaborate with our fellow man--and to punish those who cheat.  In lab tests of "The Ultimatum Game," one subject is given $10 and told to offer as much or as little as he wants to the second subject.  The second subject then either decides to take the offer or reject it.  If he rejects it, both subjects get nothing.

Economically speaking, it's irrational to reject any offer above $0.00.  But subjects consistently reject any offer less than $2.50.  We believe in fairness so much, we're willing to hurt ourselves to enforce it.

Occupy Wall Street and startup critics are about fairness.  Few begrudged Steve Jobs his wealth because he created even more value for his customers.

Seek first to give (create value) before you take (harvest value).

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